Breakfast Bites: The Fed shifts Focus

The BoJ holds; US-China meeting outcome; Big Tech earnings

Rise and shine everyone

Yesterday was the day for previews and today is the day for reviews. Today’s focus will be the ECB rate decision (hold) and earnings reports from Amazon and Apple after the close.

The Fed

Let’s start with the Fed. Not surprisingly we got the expected 25bp cut, and we got the announcement for the end of QT. But what was unexpected was the emphatic way Chair Powell said that the December cut is not a foregone conclusion.

Now if you remember, we talked about this. The dot plot dispersion in September was very close and even then, it wasn’t “confirmed” that we’d get a third cut. I’d based my analysis during last week’s CPI preview on the fact that as more & more sticky inflation data rolls in, we may see the Fed hesitate to cut by the end of the year.

The other issue was about companies eating the cost of tariffs. They’ve been doing that… but the question is, for how long? Once that starts hitting prices, we’ll see another wave of inflationary pressures.

So the Fed is between a rock and a hard place. Their two mandates - inflation and employment - are going in opposite directions. The Fed resumed cutting on the premise of weakness in the labor market.